Friday, October 17, 2008

All those who find Obama's promise of "Change" resonating deep inside them should "make sure" (Obama's favorite phrase) to read today's lead op-ed in the Wall Street Journal, "A Liberal Supermajority."

An Obama victory would give the Democrats control of the presidency and both houses of Congress. Obama, Nancy Pelosi, and Harry Reid would be running the show for at least the next two years. The last time we had a 3D government (Carter's 4 years, and Clinton's first 2 years) it ended badly for the Democrats, since it ushered in the Reagan presidency and handed Congress over to the Republicans in 1994.

Imagine if Obama were able to achieve his heart's desire, such as universal health care, increased regulation of business and financial markets, expansion of union power, higher taxes, government power to regulate CO2 emissions (a key priority according to Obama's energy advisor Jason Grumet would be to declare CO2 a dangerous pollutant, thus giving the EPA authority to set emission limits on power plants and manufacturers), and revival of the Fairness Doctrine, to name just a few. Is this the sort of change that you had in mind?

If it isn't, you should vote for McCain, even if it means holding your nose. A divided government would surely mean less expansion of government power and more room for the economy to fix its own problems.

8 comments:

The Obama/Pelosi/Reid policies you mentioned, among others, are a nightmare. Watch what happens when they regulate CO2 emissions. Rather than simply taxing carbon-based energy straight up and using virtually all the revenue for the taxpayer in order to curb/discourage consumption, they will set up an ineffective exchange (as evidenced by Europe) run by an idiotic bureaucracy that will result in massive inefficiencies. I was in Germany in 2006 when that market was created and then immediately crashed. The fact that taxing growth and private jobs and growing big government doesn't scare more people, especially in the face of the disgusting gov't spending and mismanagement we are already seeing, does not give me much hope. That is obviously just the tip of the iceberg.

The liberal economic agenda is proof positive that is is a bad idea not to teach economics to most high school students and to make it optional in college, people just aren't equipped with the tools they need to help themselves. People have better judgment when it comes to other issues than the economy. The democratic party has become a collection of pious special interest groups that just want to protect entitlements and tax growth without doing what is necessary to invest in it.

Larry and I go back a long way--he was actually the one who inspired me to pursue economics when I heard him address a group of students in 1980.

I share your concerns, and I'm sure the market does also. The dilemma we now face is this: is the economy under Obama going to be as bad as the market expects? As much as I fear his policies, I have trouble believing the economy will be as devastated as the current pricing suggests.

Even if McCain wins this election next month, the Bush tax cuts still probably expire because the Democrats are expected not only to retain control over the US House and US Senate, but increase their majorities in those chambers.

Also, McCain voted against the 2001 and 2003 Bush tax cuts. So, his enthusiasm for those tax policies might be about the same as George Bush's father's enthusiasm for "voodoo" (supply-side) economics.

We all remember how, in 1990, a Democrat Congress and a moderate Republican president collaborated on raising taxes, right?

Well, if McCain wins, we could see McCain give up on fighting for the extension of the Bush tax cuts while the Democrats Congress indicates that they aren't willing to consider extending them in any case.

Then consider that McCain agrees with the Democrats on cap-and-trade. McCain was the co-sponsor of this legislation with Joe Lieberman.

So, in some sense, a McCain presidency with a Democrat Congress led by Pelosi and Reid wouldn't be dramatically different from "triple D" government.

The advantage of an Obama presidency would be that at least the result would be considered "Left-Wing" or "Socialist" or "Democrat."

Where as if McCain and the Democrat Congress pursue the policies I described, the media would call these results, "Republican policies."

Again, the original President Bush administration is a good place to look. The original President Bush raised taxes. But when he ran for reelection in 1992, Clinton ran against "the failed policies of Reagan and Bush and trickle down economics."

The one thing I like about an Obama victory (if I assume that a GOP take-back of Congress is not possible next month) is truth in advertising. No one will be able to say that the results are due to "conservatism."

Re the prior post: The market appears to have discounted a severe downturn, greater than what we have already seen. However, I would never bet against the US economy.

As you have pointed out, inflation is around the corner. But valuations going forward provide upside not seen in a long time. There are plenty of micro investment "values" out there, but we can expect future protectionism and higher taxes not only at home but abroad (which would significantly affect earnings). So how do I forecast the recovery after the deleveraging of financial institutions and the unwinding of the global economy in a triple-D environment? How can there be constructive failure the trend is that problems are monetized?

Ah, brass tax. I agree the market always over-corrects on both ends, and that right now the fundamentals don’t reflect rational expectations. That said, I guess I see it like this: the democratic government going forward will seek stabilization via tax policy rather than monetary policy and will seek growth with monetary policy rather than tax policy (pseudo-socialism). In other words, the median income would become de facto government fiat, we would have more government intervention, and M1 would be the prime manipulator. This is unsustainable and irrational because stimulative policies have diminishing returns over time, especially once confidence begins to shake. Although I don't think this will be enough to turn our recession into a depression, I think it will prolong the economic gamesmanship and gambling that is exaggerating volatility, only in a slightly different way. People/investors will irrationally over pursue inflation hedging strategies in such an environment with the same drunken quality they did the housing and dot-com bubbles. Over time, people will lose an appreciation for the risks they are taking, and new bubbles will form. However, in such an environment, I fear the random walk will not be trending positively, which is the biggest danger (I personally don’t mind relatively high volatility). I consider this to be very bad, because the debt would grow faster than the economy in a vicious cycle. I never thought I would see the day I had to tell my folks they could not longer invest and they had to trust me to trade, but that day appears to have long since come and gone.

I am 27. I have a vested interest in seeing this economy grow. I stand by my original post: people have rejected the alchemy of finance and have converted to the cults of relativity and entitlement. The only way to change that trend is to affect the education. I am writing a hopefully short article/op-ed on the topic of popular economic misconceptions (especially how that relates to taxes and government spending) and look forward to sharing it with you in the next few days. I can’t believe people are starting to settle for socialism; it is probably more of a willful ignorance than I can accept or recognize (as I said, I have a vested interest in seeing real growth).